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New York state's highest-in-the-nation Medicaid reimbursement rate for the mentally disabled is legal and justified, officials argue in papers submitted to the federal government — and, moreover, they told the Poughkeepsie Journal, it should be even higher.

The federal government had asked the state to justify its $4,556 per-person daily rate at nine state institutions as "reasonable" in response to revelations in June in the Journal. The rate, paid half each by the state and federal governments, is four times higher than any other nationwide and about four times the actual cost of care.

Nonetheless, in releasing documents that have been turned over to federal Medicaid officials in support of the rate, officials of the Office for People With Developmental Disabilities also revealed that they are seeking to increase it — though they would not say by how much. The rate, which is set by the state, went up about 10 percent in each of the past two years and is more than tenfold what it was in 1990.

The institutions include the former Wassaic Developmental Center in eastern Dutchess County, which is now called the Wassaic campus of the Taconic Developmental Disabilities Service Office.

The state's argument in support of the rate was made by Health Department Medicaid Director Donna Frescatore in a nine-page letter that notes pointedly that the rate-setting formula was approved at every step by the federal Centers for Medicare & Medicaid Services. Fifteen pages of rate calculations, institutional payments and "cost-finding worksheets" were also provided to make the state's case, which contends that the money has helped pioneer a successful system of community care of the disabled and pays for other services beyond institutional care.

"Over the years, (the state) has submitted and received approval from CMS on over 35 State Plan Amendments related to this methodology," Frescatore wrote in a letter released by the developmental disabilities agency, which runs the institutions.

One amendment to the plan, which was "intended to ensure that annual decreases in headcount at a developmental center did not result in a center losing operating funds," was approved by the federal government in January 1986, the Medicaid official wrote.

Another, "to allow the costs associated with the planned reduction of developmental centers to become part of the operating costs" of remaining institutions, was approved in December 1994, the letter says. The measures allowed the state to retain the cost of residents released to the community, as institutions shrunk from a high of more than 27,000 residents in the 1960s to about 1,400 now.

"The rate structure has been successful in achieving the state's and CMS's shared goal of creating incentives to move to a community-based system of care," wrote Frescatore, whose department administers the state Medicaid program — the reason federal officials addressed their request to her.

But state Medicaid Inspector General James Sheehan, who assumed auditing control over the disabilities agency this month, pointed to a recent report by Lt. Gov. Richard Ravitch indicating that the agency itself had too much power over rates.

"There are significant concerns about OPWDD having responsibility for rate-setting, regulation, payment policies, and also being a provider," Sheehan said in a statement. "Lt. Gov. Ravitch recommended that the rate-setting and payment functions be assigned to the state Medicaid director (in the health department) going forward." The move would improve accountability, the Ravitch report states.

He agreed with Frescatore that "CMS approved the rate methodology."

Incentives outlined

The documents submitted to the federal government — Frescatore's letter and four attachments — outline the actual rate computations in just one page. The computation lists such things as trend factors, adjustments and capital costs to arrive at total reimbursable costs for the fiscal year ending March 31, 2009, of $2.4 billion, which, divided by the number of patient days, comes to $4,556 a day.

Little detail is offered, however. For example, the "closure incentive plan" component of the rate — one of the many state "costs" that can be charged against the rate for reimbursement — is given as $4,158,053; to justify the cost, Frescatore's letter quotes from the text in the formula allowing a closure allowance to become part of future operating costs. Whether the federal government will accept the explanation for a system for which it pays $1.2 billion annually is an open question.

In a July 13 letter, federal officials had asked the state to provide a "detailed description" of how the rates were developed; demonstrate that the rate did not exceed a federally defined "upper payment limit," and show how the rates "comport with the methodology."

Officials of the federal agency acknowledged receipt of the documents — dated Sept. 14 but released by state officials only last week — and cautioned patience on any conclusions.

"This is something that will take time," spokesman Jeffrey Hall said. "During the review process, CMS will not speculate on whether we will or will not pursue the matter further. That is contingent on what our review yields."

The documents do shed light on the direct cost of running the centers, which are put at $577.7 million — about one-quarter of what the rate generates.

The cost to run the Wassaic center is put at $68.9 million. With about 150 residents, it generates about $250 million a year in Medicaid revenues.

On the rate increase, meantime, a spokesman for the disabilities agency, Herm Hill, would only say, "A rate increase is pending with DOB (Division of the Budget) and is awaiting further discussions."

Whether Sheehan — or a possible successor — will audit the agency's program is unclear as the state prepares for an election and shift in administration.

For now, "there isn't anything to report," said Wanda Fischer, a spokeswoman.